Senators urge dropping barriers to refinance

Both of California’s U.S. Senators are among more than a dozen from both sides of the aisle who urged the Obama Administration today to make administrative reforms to help millions of responsible homeowners refinance and take advantage of today’s record-low interest rates.

The lawmakers – writing to Housing and Urban Development Secretary Shaun Donovan, Treasury Secretary Timothy Geithner, National Economic Council Director Gene Sperling and Federal Housing Finance Agency Acting Director Edward DeMarco – said that with interest rates at 3.94 percent, it’s time to lower barriers that keep borrowers trapped in higher-interest loans and to address other hurdles that limit existing refinancing programs.

Specifically, they called for removing loan-to-value limits, which they said would provide the most at-risk borrowers an alternative to simply walking away from their mortgage; eliminating loan level price adjustments, which they say make a refinance less affordable, reduce the benefit to the borrower, and can’t be justified on loans on which Fannie Mae and Freddie Mac already bear the risk; and ensuring that second lien holders don’t stand in the way of a refinance.

“Time is of the essence and we urge you to act quickly and aggressively to ensure that responsible homeowners receive the full benefit of these lower rates,” they wrote.

In President Obama’s speech to the Congress last month, he committed his Administration to working with federal housing agencies to help more homeowners refinance their mortgages at historically low interest rates. As he noted, this step could “put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”

We are encouraged by the efforts that have taken place since then to lower the barriers that have kept responsible borrowers trapped in higher interest loans and urge a speedy and comprehensive conclusion to this process. Bipartisan legislation currently before the Senate would address many of these barriers by:

Removing loan-to-value limits, which would provide the most at-risk borrowers an alternative to simply walking away from their mortgage.

Eliminating loan level price adjustments. These up-front, risk-based fees make a refinance less affordable, reduce the benefit to the borrower, and cannot be justified on loans on which Fannie and Freddie already bear the risk.

Ensuring that second lien holders do not stand in the way of a refinance.

All of these changes can be accomplished administratively and we urge that you take immediate steps to do so. We also support efforts to address other hurdles that have limited the success of current refinance programs, including representations and warranties, mortgage insurance, and high lender origination fees.

It is equally important that in reducing these barriers, the benefits of today’s low rates are not lost to borrowers. With interest rates having hit an all-time low of 3.94 percent, there are nearly 19 million loans guaranteed by Fannie Mae and Freddie Mac paying interest above 5.0 percent that could benefit from a refinance. Any changes to existing programs must enable as many of these borrowers as possible to refinance and to do so at rates comparable to those received by any other current borrower who has not suffered a drop in home value.

As was heard in recent testimony before the Senate Housing, Transportation, and Community Development Subcommittee, there is broad consensus among economists and housing experts that this is something we need to do. Interest rates, however, will not remain low forever. Time is of the essence and we urge you to act quickly and aggressively to ensure that responsible homeowners receive the full benefit of these lower rates.

Josh Richman

Josh Richman covers state and national politics for the Bay Area News Group.
A New York City native, he earned a bachelor’s degree in journalism from the University of Missouri and reported for the Express-Times of Easton, Pa. for five years before coming to the Oakland Tribune and ANG Newspapers in 1997.
He is a frequent guest on KQED Channel 9’s “This Week in Northern California;” a proud father; an Eagle Scout; a somewhat skilled player of low-stakes poker; a rather good cook; a firm believer in the use of semicolons; and an unabashed political junkie who will never, EVER seek elected office.

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Someone in Washington finally gets it with regard to how to get this stalled economy moving again!

Allow millions of homeowners who are massively underwater (but otherwise completely creditworthy) to escape the Catch-22 of their current situation (being more than 125% LTV on their home debt) that forces them to pay waaaaaaay too much of their monthly income to banks in the form of a mortgage rate much higher than what it needs to be, given the current “Crazy Bennie’s free money” yield curve!

Riiiiiiiiiiiiiiight! Everyone will get refinanced at a lower rate (remember 2008 when the government told the lenders that ability to repay would no longer be a consideration for lending?) and then they can all go sit out on their patios and watch the flying pigs.

Truthclubber

Here’s the fact check police running after that squealing litle fascist, Hellwoody, as he flys through the sky like a lying pig:

1) Everyone will NOT be covered under this proposal.
2) In 2008, the “government” was NOT telling lenders to ignore a borrower’s ability to repay. (2005 maybe, even 2006, but certainly not 2008.)

In spite of this fascist’s derisive attitude toward people who, through no fault of their own, bought a home at the wrong time with good credit and a good down payment, only to see themselves locked into usury, some people do care — even 4 Republican members of the US Senate.

Rickster

There is potentially some merit to the proposal to remove loan-to-value limits. At 7.875%, my interest rate is high enough so a bank could pay off the loan at 3%, and extend a new loan to me at 5%. I’d save $700/month and they would still make money. I have never missed a house payment. But I’m sick of sweating a ridiculously high mortgage payment. Something has to change… ultimately, if I walk away from the house, that will be the solution for me… but the bank will lose money.

Elwood

@ #4

Life is hard.

Life is not fair.

Government is not the answer.

Get used to it.

Truthclubber

Life IS hard.

Life often is NOT fair.

However, people CAN be fair. They can be kind, caring, even thoughtful toward their fellow human beings, and not selfish, thoughtless, careless, heartless fascists like Hellwoody.

We CHOOSE how we want to treat (and thus be treated by) our fellow members of the large and small communities that we live in — and Hellwoody’s choice of social darwinism leads inevitably toward a police state (and riots, mobs, looting, fires burning out of control, general chaos, etc. — see related story: British Spring, Arab Spring, Israeli Spring — pick one).

Once upon a time in America we believed in a sense of community — of each of us helping each of us to survive — or at least that’s how it was in the Midwest given how harsh and severe the winters on the barren prairies could be; people literally needed each other to survive.

Now we seem to be headed toward “I’ve got mine, and I want yours, and I’ve got enough money to buy (or rent via a cop) a gun, so hand it over” — and that’s not a road that I (unlike Hellwoody the fascist) want to travel.

BTW, Hellwoody, “government” paid for the R&D that led to the development of Arpanet, the granddaddy of the Internet, which allows fascists like you to post your selfish rants on blogs like this — so for you, “government IS the answer” to your prayers.